“Bubble” talk returned to Wall Street this week, with US stocks falling in part due to worries that biotech and other highflying stocks have risen to unjustifiable heights.
US stocks rallied on Friday, but it was not enough to offset losses the other four days. The NASDAQ Composite Index, which has outperformed the broader market this year, fell the most over the week, dropping 135.20 points (2.69 percent) to 4,891.22.
The Dow Jones Industrial Average fell 414.99 (2.29 percent) to 17,712.66, while the S&P 500 shed 47.04 (2.23 percent) to 2,061.02
Heading into the week, the NASDAQ stood above 5,000, rarified territory for an index that took 15 years to claw back near an all-time high set in 2000. However, the tech-rich index found itself on the back foot most of the week.
Biotech companies like Celgene Corp and Biogen came under pressure on worries that their promising new medications may fizzle, or take longer than expected to win regulatory approval. The NASDAQ biotech index lost 5.2 percent on the week. Semiconductor stocks were another weak segment in the index.
“The biggest story we saw was the mini-correction in biotechs and the mini-correction in semiconductors,” Wunderlich Securities chief market strategist Art Hogan said.
Hogan said sentiment is “very cautious” ahead of the upcoming earnings season, with analysts having slashed estimates for many companies. Investors are also more focused on the liabilities than the merits of the stronger US dollar and lower oil prices, he said.
Major economic data included news that US economic growth slowed to an annual rate of 2.2 percent in the fourth quarter, unchanged from a previous estimate, from 5 percent in third quarter. Despite stronger consumption, US growth was hit by a 10.1 percent increase in imports and a 7.3 percent fall in federal government spending.
Other data showed a slump in durable goods orders last month, but rising sales of new single-family homes and an increase in consumer prices during the month.
Highlighting the week’s corporate news was the merger deal to create The Kraft Heinz Co, fusing ketchup-maker the H.J Heinz Co with the Kraft Foods Group, the maker of Velveeta cheese, A-1 steak sauce, Jell-O and a host of other processed foods.
The deal, forged by investment guru Warren Buffett’s Berkshire Hathaway and 3G Capital, which owns Heinz, is to assemble the world’s fifth-largest food company, with about US$28 billion in annual sales.
Berkshire and 3G will invest an additional US$10 billion to pay for a special cash dividend of US$16.50 per share for Kraft shareholders.
Dow Chemical Co got a lift from news that it will separate its US cholorine businesses and merge them with chemical company Olin Corp into a company with revenues approaching US$7 billion.
Conditions stayed turbulent for petroleum stocks, which continue to reel from lower oil prices. Whiting Petroleum Corp sank nearly 22 percent in the week as it announced a US$1 billion bond offering and a major equity offering that will dilute existing shares.
However, cruise companies surged at week’s end on a better profit outlook due in part to lower fuel costs.
Carnival Corp on Friday announced higher profits and said it ordered nine new cruise ships from shipbuilders in Germany and Italy.
Earnings season gets under way next week with results from agricultural giant Monsanto Co on Wednesday. Most major reports will not be released until late next month.
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